As I think about today's date I must consider that it has been 31 years since the Crash of 1987. I also must consider how many are calling for a crash in the market.
I have a strong view about these sorts of calls. They are outliers the same way calling for a melt-up is an outlier. Markets go up and down, or at least they ought to go up and down, why search for an outlier? Can we crash? Sure, why not? The same way we can melt up. But after 1987 they put in circuit breakers so I believe we are unlikely to go down 20% in one day, especially after going down nearly 10% the prior week (yes, that's what happened in 1987).
Is the market healthy now? Of course it isn't. But it hasn't been healthy for months, has it? If it had been healthy we would not have seen breadth peak in late August while the S&P rallied on its merry way.
If the market was healthy we would not have seen the number of stocks making new lows increase in September and skyrocket in October, would we?
Yet I'd like to draw your attention to this chart of new lows. Last Thursday saw 526 new lows and this Thursday saw 245 new lows, so about half as many. Sure it's possible if the S&P cracks another 40 points, back to last week's lows that the new lows increase to more than 526 but they haven't done so yet. This is the opposite of what we saw in early September when the market rallied and new lows increased. In fact take a look at the ten day moving average of new lows on the NYSE. See the non-stop rise in September? It rolled over earlier this week.
The Overbought/Oversold Oscillator is also far from making a lower low
Then there is sentiment. Doesn't it feel as though everyone has turned cautious? It seems that way to me. And yes there is good reason for it. There is now a laundry list of reasons, like China, like interest rates, or like poor reaction to earnings. That's probably why the put/call ratio ran up to 130% on Thursday. This has now pushed the ten day moving average up into lofty territory. I expect it to roll over in the next two trading days.
Even the put/call ratio for ETFs went back above 200% again. It did so on October 10th. Yes we were down hard the next day but then we rallied hard. Let me remind you that heading into early October we saw this particular put/call ratio under 100% four times in the course of two weeks. Sentiment has surely shifted.
I had thought we'd rally on Thursday so I was wrong but as a slave to my indicators I still think we should have another rally attempt.